Advocata SOE Briefing Note : Getting the State Out of Business: The Compelling Case for Privatisation of State-Owned Businesse

Sri Lanka's state-owned enterprises (SOEs) are a major hindrance to the country’s economic prosperity. The state's footprints extend across all major industries - telecommunications, banking, ports, petroleum, and power generation. With over 400 SOEs spread across 33 sectors and employing roughly 250,000 workers, they form an inefficient, bloated bureaucracy. The IMF's Governance Diagnostic Assessment flags SOEs as being high-risk for corruption, plagued by weak management, shoddy oversight, rigged procurement processes, political interference, and a lack of transparency. Sri Lanka cannot afford the status quo. Decisive action to privatise SOEs is essential to break free from the cycle of inefficiency and corruption, and unlock sustainable economic growth.

Here is the link to the Advocata SOE Briefing Note in English on

Getting the State Out of Business: The Compelling Case for Privatisation of State-Owned Businesses

Here is the link to the Advocata SOE Briefing Note in Sinhala

Here is the link to the Advocata SOE Briefing Note in Tamil

Advocata Report on SOEs makes an impact at Chamber event

Photo Courtesy Kithmina Hewage 

From Dailymirror.lk:

According to the minister, a top corporate sector CEO has also been appointed to lead the Public Enterprise Board but fell short of disclosing who the official was. The minister said he was in the audience leaving the participants to guess.

According to Advocata, an independent policy think tank, 55 strategically important SoEs in Sri Lanka have made a cumulative loss of Rs.636 billion during 2006 and 2015.  The cumulative profit of the profitable SoEs during the same period has been Rs.530 billion, excluding the Employees’ Trust Fund.  The statement by the minister suggests that the government is ready to go the whole hog in privatizing both the strategic as well as non-strategic SoEs despite the immense political risk forthcoming.  Speaking at the final session under the theme titled, ‘The Future of Public Enterprises’ Samarawickrama said the government had reached the final leg of entering into a public-private partnership (PPP) to restructure the loss-making national carrier, SriLankan Airlines but did not disclose the party involved.

Meanwhile, Chief Opposition Whip and Janatha Vimukthi Peramuna Leader Anura Kumara Dissanayake said if the government could take over the liabilities of SriLankan Airlines prior to the sale of the carrier to a private party, they should also be able to take over the assets and run the airline. 

From EconomyNext.com

SOEs were used to give off-budget subsidies and they borrowed from banks, pushing up interest rates and depriving funds and raising the borrowing costs of small enterprises.

Although some SOEs made profits, they do not reflect the returns for the investments made. Anushka Wijesinghe, Chief Economist at the Ceylon Chamber of Commerce, said that a report by Advocata, an independent think tank, found that from 2006 to 2015 it cost taxpayers Rs640 billion.  

A part of the losses made by SOEs were financed by the budget. 

"That means the government has to find tax revenues. Or else, the government has to borrow the money domestically or from abroad. 

"These debts also have to be repaid by the people through future taxes. One way or the other the people have to bear the financial cost of these losses."

Advocata Institute's Report on SOEs is available in our research section.

@advocatalk: loss making #srilanka SOEs cost tax payers 620 billion. employees doubled. #sles2016 @CeylonChamber

— Helani Galpaya (@helanigalpaya) August 3, 2016

Privatization & Public Private Partnerships Of SOEs In Sri Lanka

Arundathie Abeysinghe writes on Colombo Telegraph on SOEs In Sri Lanka,

In many Asian countries including Sri Lanka State-owned Enterprises (SOE) continue to control vast swaths of national Gross Domestic Product (GDP) with the state as their biggest share holder. As such, they control about 1/3 of total enterprise assets and SOEs are larger than their non-SOE peers. There is a great variety among Sri Lankan SOEs. Meanwhile, SOEs in the sectors that are monopolized by the state yield good income and profitability, while those that are not supported by the state record poor performance. To better understand the profitability of Sri Lankan SOEs, a deeper analysis should be done by looking into individual sectors.

Shares of SOEs in different sectors are diverse. The majority of SOE profits are contributed by sectors that are monopolized by them, whereas, sectors which are dominated by non-SOEs are major sources of non-SOE profits. The majority of the SOE profits are contributed by state-monopolized sectors and such SOEs record a respectable rate of return.  At the same time, profitability of SOEs in sectors with less state domination is much poorer.

According to the Treasury Annual Report 2014, at present Sri Lanka possesses 245 State Owned Enterprises (SOEs), of which 55 have been identified by the General Treasury as strategically important SOBEs under the clusters of Banking and Finance, Insurance, Energy, Ports, Water, Aviation, Commuter Transport, Construction, Livestock, Plantation, Non Renewable Resources, Lotteries, Marketing & Distribution, Health and Media.

Read The entire article on Colombo Telegraph

Privatisation popular according to an online Poll

An online poll conducted by roar.lk amongst it’s readers indicates, that privatisation remains a popular option with an overwhelming majority saying that Sri Lanka cannot move forward without at least some form of privatisation.

Readers of the website however tend to be from the more urbane, english-speaking part of the population and unlikely to be representative of the country in general.  

During the panel discussion at our event on State Enterprise reform in Sri Lanka,  panelists discussed the reasons for why the general public seems somewhat against privatisation.  

Opinion - Sri Lankan Airlines, sour or to sour?

J. Lorenz writes on Lanka Business Online, about Sri Lankan Airlines:

"Although the government inherited a profitable business in 2008 they successfully managed to run it into the ground due to mismanagement and corruption. The two explanations available are the Jensen and Meckling (1976) theory of ‘principal-agent problem’ and the free-rider problem, both of which concern self-seeking individuals, as discussed at the launch of Advocata Institute at the Lakshman Kadirgamar Institute earlier this month.

Managers of state owned firms are aware that salaries would be paid regardless of performance of the company hence motivation to perform is taken away thereby embodying the free-rider problem. Further, tax-payers would continue to pump money into failing SOEs whereas a private company would pump their own money into the business risking everything, hence increasing the commitment to perform well. The budget funds given to SOEs in 2014 is equivalent to every household paying 24100 rupees to keep SOEs afloat. This is while around 40% of Sri Lanka’s households earn less than 24000 rupees a month"

Read the entire article on LBO